The Use of Leverage as a Way to Signal Random

question 40

True/False

The use of leverage as a way to signal random information to investors is known as the signalling theory of debt.

---

Definitions:

Total Assets

The sum of all assets owned by a company, reflecting its overall resources, including both current and non-current assets.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.

Equity Multiplier

A financial ratio that measures the portion of a company's assets that are financed by shareholder's equity, providing insights into leverage.

Profit Margin

A financial performance ratio, calculated by dividing net income by sales revenue, indicating how much profit a company keeps from its sales.